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St. Cloud State University
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Institute takes look at economy
By Scott Bushee
Published:
Tuesday, February 25, 2003
Media Credit: Adam Masloski
John Frobenius from the St. Cloud Hospital speaks at the Winter Institute and Economic Outlook. The 41st annual event was held in Ritsche Auditorium Thursday and Friday.
When faced with the question of whether or not the economy will recover in the near future, the speakers at both Thursday evening's Economics Outlook and Friday morning's Winter Institute were all able to agree on one thing: it depends on the war with Iraq.
In what SCSU Economics chair King Banaian called "a major policy speech," which was covered by the international press agencies such as Bloomberg and Reuters, Federal Reserve Governor Ben Bernanke outlined on Friday what he saw to be problems in the economy. Bernanke gave his speech from Ritsche Auditorium.
Director of the SCSU Center for Economic Education Rich MacDonald noted that, "While not stating this directly, Bernanke's hidden message was that a strong recovery would be well on its way in the absence of uncertainty associated with a possible war with Iraq."
Bernanke focused on three fundamental areas: consumers, financial markets and firms.
Consumers, whose spending makes up more than two-thirds of Gross Domestic Product, seem to be up to the task of bearing their burden.
According to Bernanke, two things account for this. First, unlike the recession of the early 1990s, real disposable income rose over the past two years by 1.8 percent in 2001 and a surprisingly strong 4.5 percent in 2002.
The second area that drives consumer spending is wealth or household assets minus liabilities, which "has been more of a mixed bag." The fall in stock prices has been widely felt, as over 50 percent of American households currently own stock. However, the Federal Reserve staff estimates that decline in wealth only lowered expected growth in consumer spending by 1.5 percent.
Bernanke downplayed concerns about rising household debt by noting that restructuring debt into mortgages leads to an increase in total debt but a decline in interest cost.
Banks and other financial institutions, despite last summer's stock analyst and accounting scandals, are doing quite well. They seem willing to lend, which is different from the recession of the early '90s.
Even firms, whose lack of investment helped cause the recession, are looking brighter. Productivity is up. Though this has thus far allowed the business sector to meet rising consumer demands without investing in capital or employees, according to Gov. Bernanke.
"Businesses cannot indefinitely squeeze increasing productivity out of fixed resources and eventually will need to invest and add workers," he said.
Though profits have been weak lately and credit quality has declined, these problems are largely sectoral. Telecom firms account for 55 percent of corporate bond defaults and a high amount apply to energy and utility firms.
At Thursday's Economic Outlook, speaker Dan Laufenberg, the chief domestic economist for American Express Financial Advisors, agreed that war was a major issue in the short term recovery. He summed up his concern about the impact of the war by saying "I'm not concerned about winning the war, what I'm worried about is winning the peace."
Two major problems he associated with the war are the potential spike in oil prices and decline in consumer confidence, both of which would hamper the consumer driven recovery.
Laufenberg also stressed that we are already in the recovery stage. Real GDP was up 2.8 percent last year. The only reason it has not felt like a recovery is that, like in the early '90s, this was a jobless recovery. Though we lost 437,000 jobs in the first year of recovery, Laufenberg predicted gains later this year.
Thomas Stinson, Minnesota state economist, agreed that it was difficult to call the first two quarters due to the various possibilities of war. Based on not having a long war, he also predicted a strong recovery starting in the third quarter of this year.
Stinson also proposed a way to help avoid future budget crises. He pointed out that much of this year's troubles came from shortfalls in capital gains taxes and taxes on corporate incomes.
By reducing reliance on such volatile sources of revenue, it would help future stability. Stinson proposed shifting the tax base to more stable income and property taxes.
In addition to the threat of war, SCSU economics professor Mark Partridge said that the St. Cloud economy also depends a lot on one thing: Fingerhut. While the St. Cloud area has always done well in job growth, the area has lost over 4,500 jobs since 2000 from that one company.
Partridge said that if Fingerhut can successfully restructure, this will boost the area's economy.
Other events that occurred on Friday were a speech by Harold Hodgkinson, the co-director of the Center for Demographic Policy and a panel discussion on the workforce in the near future.
Hodgkinson's speech focused on demographic trends. While there were some negatives, such as the fact that America ranks last in poverty relief in 22 developed nations, there were also positive trends in minority educational and economic performances.
The panel was moderated by Theresa Bohnen, president of the St. Cloud Area Chamber of Commerce. Speaker Jill Magellson of Manpower discussed various problems facing both employers and potential employees, and suggested methods of dealing with them. John Frobenius, retired President/CEO of St. Cloud Hospital & CentraCare Health Systems highlighted specific problems as they pertain to the health sector.
U.S. Congressman Mark Kennedy (6th district, MN) gave us a national perspective on how to help deal with local problems, including such things as the local effects of steel tariffs and social security. Finally, Mary Peters of the Federal department of transportation discussed the importance of transportation to the economy.
"The 41st Annual Winter Institute was a great triumph...certainly one of the best programs in the rich history of this grand event," MacDonald said.
